AbstractThis study offers some empirical evidence that changes in the US monetary policy affectKorean financial market volatilities, and the efficacy of the Bank of Korea’s policy interestrate to market long-term rate channel of monetary policy since 2000, with emphasis onthe post-2008 period, notable for unconventional US monetary policy. In addition, somestructural issues related to the financial health of Korean central bank’s balance sheetare reviewed. Results suggest that capital inflow had weakened the efficacy of monetarypolicy since 2008. The resulting expanded domestic liquidity appears to have contributedto the trend of steady growth in Korean household indebtedness. Given the severe fluidityof the external monetary/financial situation in the short term, having more flexibility inpolicy rates in both directions seems advisable. It would also be desirable to grant moreautonomy to the Bank of Korea in disposing its operating profits so that it could buildup its equity reserves. This measure would enhance monetary policy credibility in themedium term by allaying concerns that monetary policy deliberations might beencumbered by potential operating losses, which could lead to onerous consequences forthe Bank of Korea.